Yahoo Finance 5 Things Americans Want From Tax Reform
As an unusually large pack of contenders chase the seat of a lame-duck president, age-old ideological debates have reignited as the candidates discuss hot-button issues. The overarching theme appears to be equality -- or, perhaps more accurately, a lack thereof.
From worsening income inequality to marriage and gender rights, the notion of fairness -- financial fairness, in particular -- has pervaded the public and political discourse. And as the question, "How are we going to pay for that?" gets a workout, the discussion naturally devolves into a debate about one of life's preeminent certainties: taxes.
We're certainly going to hear a lot about the changes advocated by presidential candidates in the coming months, but it's fair to wonder: What do we, the people, want to see from tax reform? WalletHub surveyed over 1,000 Americans last year to ask just that, and the results offer some interesting insights into the psyche of the typical taxpayer:
Equality Is More Important Than Economy
When asked which they considered to be most important, "tax equality," "tax fairness" or "whatever is best for the economy," respondents overwhelmingly placed the economy at the end of the priority queue. More than 60 percent said tax fairness was the most important of the three issues, while nearly 20 percent sided with tax equality, and only 18 percent put economic prosperity above all else.
This likely would not have been the case a few years ago during the depths of the Great Recession. In addition to reflecting popular sentiment about a system that many feel only works for an elite few, the fact that we have the luxury to feel this way could be construed as economically encouraging.
More Simplicity, Fewer Deductions
One of the biggest areas of agreement among taxpayers, regardless of age or party affiliation, concerns how complicated the tax code has become. Eighty percent of survey respondents consider it to be "complex" or "too complex," while only 2 percent report it being "simple" or "very simple." What's more, 44 percent of people think the fairest possible tax code would have fewer deductions than we do now, while only about 31 percent think more deductions are in order.
This seems to reflect the long-held belief that tax code complexity enables those with the most means to exploit loopholes that may not be apparent to the general population.
Higher Corporate and Capital Gains Rates
The Wall Street versus Main Street rivalry has been one of the most important themes permeating the financial landscape in recent years. Not only were many taxpayers enraged at government bailouts dispersed to institutions that were at least partly culpable for the downturn, but the fact that corporate earnings have bounced back much faster than household incomes has seemingly added insult to injury -- especially with some of the biggest companies parking revenue overseas to avoid high U.S. tax rates. Hedge fund managers who've made a killing in our six-year bull market with the aid of rules that enable their earnings to be taxed as investment returns rather than normal income haven't helped either.
With this context, it should be no surprise that 90 percent of survey respondents say investments should be taxed at least as much as wages, and 65 percent think corporations should pay taxes at a higher rate than consumers. But as revealing as such figures are about taxpayer sentiment, they're also perhaps equally as worrisome in terms of what they say about stock market participation. We certainly don't want the memory of the Great Recession to prevent people from taking advantage of what has historically been the most efficient mechanism for wealth generation.
Higher Tax Rates for the Rich
Words carry a lot of baggage, which is one reason why terms such as "fair," "flat" and "progressive" can be powerful in the hands of politicians when it comes to shaping opinion. In conducting our survey, we asked respondents to choose their preferred tax structure from a series of graphics depicting how rates change across income levels. The most popular choice is a format where everyone pays something, and rates rise steadily according to income before plateauing for the highest earners.
Bring On The Sin Taxes
Taxes on alcohol and tobacco purchases are actually the most popular among consumers, with more than 75 percent of people saying they consider such levies to be fair. When you contrast this with taxes on gas and wages, which both have approval rates in the mid-40s, it's obvious that people feel they should be taxed for unhealthy habits that increase society's financial burden.
At the end of the day, one of the main reasons tax policy is so widely debated is that no one has all the answers. Priorities and values vary significantly by person and are often mutually exclusive. But, specifics aside, there seems to be a groundswell of support for Uncle Sam to view his children equally when it comes to contributing to government coffers. How such sentiment ultimately plays out at the polls remains to be seen, but we can bank on it having a significant impact in the race.
Odysseas Papadimitriou is CEO of the personal finance websites CardHub and WalletHub. He previously was a senior director at Capital One.
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